Oh, what a tangly regulatory world we live in. The province’s Public Utilities Board (PUB) usually generates press only when it’s setting new electrical rates for customers, or else when it’s being accused of wasting “millions of dollars” dealing with reference questions about the Muskrat Falls project.
The fact is, though, that the PUB trundles through a whole bunch of stuff: already this year, it has issued 10 orders under the Public Utilities Act and another three under the Automobile Insurance Act.
One of those, Board Order No. 6, came down in early March. And while it talks about just one segment of the power business in this province — the industrial rate to be charged to Vale’s Long Harbour operations, which, incidentally, is the power demand that almost single-handedly tips us into needing new power generation — it’s a fascinating example of how everything’s connected.
Unlike some of the PUB’s hearings, there don’t seem to be any detailed filings of evidence for the Vale rate.
But there is the substance of the complaints from Newfoundland Power and the consumer advocate about what those Vale rates mean for the rest of us.
Paying the price
As the PUB order describes it, Newfoundland Power is concerned that other power customers — that’s you and me — will have to pick up the slack for Vale’s being added to the pool of companies that receive industrial rates: “Newfoundland Power argues that rates to be approved for Vale should reasonably reflect the cost of serving Vale. According to Newfoundland Power, ‘If the rate charged to Vale does not reasonably reflect costs, then a hazard exists that any shortfall may be recovered from other customers, including the customers of Newfoundland Power.’ Newfoundland Power submits that the rate proposed by Hydro for Vale includes an energy charge that does not appear to reflect the cost to serve Vale.”
That’s interesting enough, but have a look at what the consumer advocate had to say, according to the PUB: “In his submission the consumer advocate states that this application has significant repercussions for electricity consumers of the province. He states that the rate proposed by Hydro for Vale is well below the incremental cost of supply, collecting only about 18 per cent of the fuel costs at Holyrood, resulting in a $14.9 million shortfall over 2012 and 2013, much of which may be transferred to other electricity consumers in the province. Since Hydro has not filed a cost of service study there is insufficient information available to determine a cost reflective rate for Vale.”
And it’s not just Vale that’s getting power for less than it costs to produce it: “The consumer advocate agrees with Newfoundland Power’s submission that the rate approved for Vale should be a cost-based rate and believes that both the Teck Resources rate and the current rates for Corner Brook Pulp and Paper Limited and North Atlantic Refining Limited fall well short of costs.”
And on that, the PUB agrees: “All parties, including Hydro, acknowledge that the present rates for all industrial customers, including Teck Resources, do not recover the costs of providing service. … The board notes that, at present, neither of the existing interim industrial rates recovers the cost of providing service. There is also no proposed rate before the board which is a true cost-based rate.”
Interesting.
The board order suggests that industrial rates won’t change until there’s a general rate hearing — and that industrial rates can’t be brought into line with what it actually costs to produce power until Newfoundland Hydro actually does a cost of service study.
And all of that leaves you asking some other interesting questions, what with us being on the crux of major electrical price changes in this province.
For example, if the Corner Brook paper mill is a marginal player in the ever-declining newsprint industry, what would new electrical rates based on the cost of servicing their power needs mean?
Do new power rates — especially those reflective of the new, much-higher costs government tells us are coming in any circumstance — mean the big industrial power users will have to think twice about their business models, or will government have to think twice and provide them with either special rate relief (meaning everyone else picks up the freight) or direct subsidies?
What happens when new mining ventures want power, and what will they pay? The cost of actually providing power, or something less?
And if the big power users step away, do we even need Muskrat Falls, or can we manage to cap demand enough to reach 2041 without substantial growth in generation?
Lots of questions.
Fewer answers.
Russell Wangersky is The Telegram’s
editorial page editor. He can be reached by email at rwanger@thetelegram.com.
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It's not a "discount". When government supplies business with an input at below cost then it's called a SUBSIDY. Hell, we can really up that load forecast if we just gave away the electricity. Apparently the province's "Energy Warehouse" is the people's pockets.